Monday, March 26, 2012

Another eventful week at work (last week). Two coauthors in town (Fabrizio Mattesini and Randy Wright) and three seminars (Nicolas Trachter, Mario Crucini, and Fatih Guvenen). Well, four seminars, I guess. Narayana Kocherlokota was in town to deliver the Hyman P. Minsky lecture at Washington University. Oh, and Mark Thoma also gave an interesting seminar on how bloggers have helped (or possibly harmed) the nature of economic discussions/debates (see here). Fascinating stuff all around.

Mark was visiting the St. Louis Fed all last week (at my invitation). Of course, I knew that keeping him away from Steve Williamson was going to be a problem. And I was right. Here they are at the Kocherlakota event, with me trying to break up their fight:

"You'd be amazed by how many wealth individuals have terrible credit ratings. And besides, if you go to a bank, it can take weeks or months to get a loan. When we make a loan, it's usually the same day,'' said Joran Tabach-Bank, head of Beverly Loan Co.

It seems hard to believe that the wealthy individuals he refers to apparently do not have good relationships with their local bank (he includes bankers in this set!). But there you have it.

"Most people have a vision of pawn shops as sad sites. But that's not the case here," Taback-Bank said. "I have a lot of people who come in who have a business opportunity and they need an infusion of cash for business purposes," he said.

Like the banker who can't get the cash loan he needs from his own bank?!

Of course, the business of transforming "illiquid" assets into "liquid" securities is as old as...well, it's as old as banking; see here. And now that pawnshops are muscling into the shadow banking sector, I wonder how long it will be before they too will be subject to regulatory oversight? After all, standard monetary theory predicts that assets that suddenly emerge as good collateral objects will be valued above their "fundamental" value; i.e., they will trade a a liquidity premium (which resembles a price bubble).

And, lo and behold! Do I detect a wine price bubble emerging out there?! (source)

I wonder if the Fed might consider expanding the set of securities acceptable at the discount window to include...um, no...probably won't happen.

Anyway, just having a little fun here before cutting out for the weekend.
Cheers!

Tuesday, March 13, 2012

Gregor Smith forwards me this paper (coauthored with Nicolas-Guillaume Martineau) that estimates the impact of government spending growth on real GDP growth, using data from a cross-section of countries during the interwar period 1920-1939. Here is their abstract:

Diﬀerences across countries or decades in the countercyclical stance of ﬁscal policy can help identify whether the growth in government spending aﬀects output growth and so speeds recovery from a recession. We use the heterogeneity in the government-spending reaction functions across twenty countries in the interwar period to identify this eﬀect. The main ﬁnding is that the growth of government spending did not have a signiﬁcant eﬀect on output growth, so that there is little evidence that this central aspect of ﬁscal policy played a stabilizing role from 1920 to 1939.

As usual, a lot depends on the plausibility of the identifying assumptions employed.

The limitations of the data, in frequency and coverage, may prevent us from reaching a precise answer about the eﬃcacy of ﬁscal policy, but it is still of interest to know whether that is the conclusion. Of course, the answer and its precision depend on an identiﬁcation scheme. This paper adopts a new one: the main identifying assumption is that countercyclical ﬁscal policy could have worked in any country but was not tried to the same extent in every country. Identiﬁcation relies on diﬀerences across countries (or over time) in ﬁscal reaction functions that capture the response of government spending to national income. We use these diﬀerences to estimate the eﬀect of this government spending on the growth of income in turn.

The authors conclude (in a rather provocative and un-Canadian manner, I might add), that the evidence over this period fits better the infamous "Treasury view."

If you have some thoughts to share on their identification scheme and/or interpretation of their results, please feel free to comment. I'm sure the authors would appreciate your feedback.

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